The Apple logo on a store in San Francisco, California.

The Apple logo on a store in San Francisco, California. Credit: Bloomberg/David Paul Morris

A chorus of business commentators has declared the "end" of the conglomerate in 2021, pointing to recent decisions by corporate behemoths such as General Electric and Toshiba to split into smaller, more focused companies.

No, that's not the case. In reality, the real conglomerates - the ones that gave rise to the term in the postwar U.S. - perished many years ago. That they went the way of the dinosaurs is understandable: These chimerical corporations took diversification to levels that make today's giants look laser-beam focused.

Today's corporate downsizings, then, don't represent the end of anything. They're just a faint echo of something that happened 50 years ago.

When corporations get big, they do so in predictable ways. They might acquire competitors in the same field in the hopes of controlling a critical share of the market. It's a strategy that monopolies like Standard Oil perfected over a century ago.

There's also vertical integration, where a company acquires suppliers or distributors and retailers to better control production from raw materials to end consumer. Think Ford Motor Company in the 1920s.

Then there's diversification, where companies go into other different fields. That accurately describes today's big, diversified companies.

But for the most part, the different pieces of contemporary mega firms have some subtle relationship to one another. Most of the constituent companies might be defense contractors, for example, or represent different applications of a core business such as computing power.

In the immediate postwar era, though, large corporations adopted a very different version of diversification. The new paradigm was ostensibly born of a desire to balance seasonal fluctuations in the core business, or the vicissitudes of the business cycle. When one part of the company struggled, another flourished. Or so the theory went.

In reality, the new emphasis on eclecticism was driven by a desire to avoid government scrutiny. In 1950, Congress passed the Celler-Kefauver Act, which sought to strengthen enforcement of antitrust laws, particularly any attempt at vertical integration that might squelch competition. For corporations seeking to get bigger without risking regulatory scrutiny, the response was obvious: acquire utterly unrelated business. The farther afield the new acquisition, the better.

So began a very strange chapter in the nation's business history. In 1956, the New York Times noted some of the odd bedfellows born of these unions: "An asbestos products concern went into aviation equipment. Dry batteries went into sun glasses. Carbon steel went into beer. Coal mining went into underwear. Textiles went into airborne radar equipment. Recovery of placer gold went into wine." And so on.

But these initial feints at diversification could not compare to the scale of the acquisitions the following decade. In the 1960s, "conglomerate" became a household word, one that showed up in popular culture as shorthand for the incomprehensible bigness of American business.

As historian Richard Popp has shown, these new corporate combines popularized a curious babble of buzzwords. The vaporous concept of synergy, for example, became one of the most common ways to rationalize the marriage of companies manufacturing everything from chewing gum to aircraft propellers.

The reality was more complicated - and interesting. The era's most iconic conglomerates - Textron, LTV, Litton Industries, Gulf and Western, and International Telephone and Telegraph - were generally run by impresarios who didn't really have much of a grand vision for their motley enterprises. Instead, they relied on financial legerdemain and a philosophy of endless acquisition to keep their enterprises growing.

Typical of the breed was James Ling, who founded Ling-Temco-Vought, or LTV, in 1961. A high-school dropout who spent time in the Navy before teaching himself the rudiments of electrical engineering, Ling managed to parlay $3,000 into a gargantuan conglomerate.

His strategy was consistent: Borrow money from unconventional sources, typically banks in Europe. Use the cash to finance a corporate takeover. Merge the two companies via a swap of securities and then spin off parts of the new unit as separate subsidiaries, each of which issued stock, with LTV retaining control of 70% to 80% of the shares. Lather, rinse, repeat.

Ling, who built a house in Dallas that one journalist memorably described as "a Palace of Versailles in the style of a Holiday Inn," was the subject of countless otherwise glowing profiles in the late 1960s, which uncritically repeated his rags-to-riches story and echoed the conventional wisdom that he was, as the New York Times put it, a "financial Archimedes."

But in hindsight, Ling's strategy looks, well, bonkers. In 1969, for example, the Saturday Evening Post ran a story on Ling and LTV that observed, with barely a raised eyebrow, that executives at the company could not reliably remember all the holdings that made up LTV. After all, each subsidiary of the company had its own subsidiaries, which in turn might have yet more subsidiaries.

This was, the magazine explained, "in keeping with Ling's goal that each of them [would] become a duplicate of the parent company" - a corporate hall of mirrors where diversification continued ad infinitum. The result, the magazine reported, was a company whose product lines encompassed everything from "bacon to guided missiles." Synergies, indeed.

LTV was hardly alone. Its name notwithstanding, ITT was not really about telephones and telegraphs. Between 1964 and 1971, it absorbed 98 unrelated companies, putting it in control of a bewildering array of familiar goods.

"A consumer who became annoyed by ITT would have a difficult time boycotting it," observed Time magazine in 1972. "He could not rent an Avis car, buy a Levitt house, sleep in a Sheraton hotel, park in an APCOA garage, use Scott's fertilizer or seed, eat Wonder Bread or Morton frozen goods."

The endless acquisitions of random companies accounted for most of the conglomerates' growth. Acquisitions temporarily juiced their stock prices on Wall Street, but it wasn't a sustainable model, particularly as many newly acquired subsidiaries struggled to find their place in the sprawling, incoherent enterprises to which they now belonged.

By the early 1970s, the conglomerate began to fall out of favor, as stock analysts belatedly noticed that the sum total of the value of each component of a conglomerate was often more than the value of the conglomerate itself. The sum of the parts was greater than the whole. Over the remainder of the decade, giants like Ling saw their fortunes and reputations collapse, along with their stock values.

Some of the conglomerates disappeared altogether. Ling was deposed from the company he created in a corporate coup known as the "Palace Revolt," but the conglomerate now known as the LTV Corporation would eventually go under in 1986, the largest bankruptcy in American history until that time.

ITT survived, but became embroiled in a host of scandals. It, too, would shed much of its more idiosyncratic acquisitions. Other conglomerates followed a similar trajectory.

The skeptic might argue that the conglomerate form is still alive and well, particularly among today's tech giants - that they represent so-called "neo-conglomerates." But a closer look at the acquisitions of companies like Apple or Google or Amazon betray an underlying logic: The pieces are meant to work together.

Mega-retailer Amazon moves into selling groceries by buying Whole Foods, for example; Apple moves into self-driving cars, anticipating that this will be the next place where they can colonize computer screens. It makes sense.

But if you hear that Apple has decided to go into the meat-packing business - or that Google has acquired several pulp and paper factories, the Cracker Barrel restaurant franchise, a tire company, as well as Victoria's Secret - you might want to consider some alternative investments.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Stephen Mihm, a professor of history at the University of Georgia, is a contributor to Bloomberg Opinion.


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